Singapore grabs the headlines in Asia with a re-centring of the NEER trading band


MAJOR HEADLINES – PREVIOUS SESSION

  • NZ Feb. Retail Sales out at +0.2% m/m vs. -0.5% expected and revised -1.2% prior

  • NZ Feb. Retail Sales ex-Auto out at -0.1% m/m, as expected, vs. revised +0.2% m/m prior

  • SI Mar. Non-oil Domestic Exports out at +10.8% m/m, -17.0% y/y vs. +1.6%, -23.8% prior

  • SI Q1 Advance GDP estimate out at -19.7% q/q, -11.5% y/y vs. -9.6%, -9.1% expected

  • AU NAB Mar. Business Confidence out at -13 vs. -22 prior

  • AU NAB Mar. Business Conditions out at -17 vs. -20 prior


THEMES TO WATCH – UPCOMING SESSION

  • Sweden CPI (0730)

  • US PPI (1230)

  • US Business Inventories (1400)

  • US Fed’s Evans speaks (1430)

  • US Fed’s Bernanke speaks (1730)

  • US Fed’s Stern speaks (2045)

  • US ABC Consumer Confidence (2100)

Market Comment:

Markets will be awaiting the return of Europe after the long weekend to determine whether the USD weakness seen during the NY session on Monday will continue. The USD was under broad selling pressure as risk appetite favoured other currencies. China-linked news and data accounted for some reasons to move out of the dollar, with the China Securities Journal reporting that China was planning a new economic stimulus package targeted at boosting consumption. In addition, Chinese Premier Wen Jiabao commented at the weekend that the economy was in better shape than expected, with March industrial output growth above forecast, but was still facing big challenges. The PBOC also confirmed it would continue to implement a relaxed monetary policy stance and keep sufficient liquidity in the banking system. This assurance came after weekend data showing new Yuan loans amounted to 1.89 tln Yuan, an annual rise of 29.8% y/y, in March and brought the q1 total up to 4.58 tln Yuan. Finally, the NYT carried a story highlighting that China had reversed its role as the fastest buyer of US Treasuries and other foreign bonds, actually net sellers in January and February before resuming purchases in March. All-in-all the dollar lost some 1.7% against the USD index over the Easter break.

Hot on the heels of the better results from Wells Fargo before Easter, Goldman Sachs surprised last night with an early release of its Q1 earnings. Well above forecast, the numbers gave stock futures a brief lift after the bell but the positive sentiment soon fizzled out. Asian bourses were mixed, with the Nikkei down about 1% (note Tokyo was open throughout Easter) but Australia up 2.5% after the 4-day break.

This morning, Singapore’s central bank adjusted the mid-point of its trading band for the S$NEER in response to a deteriorating economic environment at its semi-annual review of policy. Using exchange rate adjustments to the trading band for the S$NEER to steer quasi-interest rate policy, the MAS re-centred the NEER mid-point around the current prevailing level, kept the band width unchanged and also preserved its neutral bias on SGD appreciation. Calculations suggest that this amounts to a one-off depreciation of the currency of around 4%, though the markets had already pushed the SGD lower beforehand, and the MAS was acting more retrospectively. While the move had been widely anticipated, there was disappointment in some quarters that the move was not more aggressive and USDSGD tanked 2 big figures in short order, exaggerated by a market that was overly short SGD and comments from the MAS that there is no reason for “any undue weakening of the SGD”. At the same time, the advance Q1 GDP numbers were shocking. Q1 growth was down a staggering 19.7% q/q and -11.5% y/y vs. expectations of -9.6% and -9.1% respectively. Growth forecasts for the full year were also revised aggressively lower, to -6/-9% from -2/-5% previously.

With a blank data slate to start off the European week, US retail sales data will be in focus later today, with markets hopeful that the strong start seen in the first 2 months of 2009 can be extended. Negative influences will obviously come from the soft labour market and correlated consumer confidence numbers. Positive inputs may be found in the strong March showing by the Redbook sales index, finishing march above target, and a slower annual decline in the ICSC weekly retail chain stores sales index.